Charles River provides essential products and services to help pharmaceutical and biotechnology companies, government agencies and leading academic institutions around the globe accelerate their research and drug development efforts. Our dedicated employees are focused on providing clients with exactly what they need to improve and expedite the discovery, early-stage development and safe manufacture of new therapies for the patients who need them.
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|Charles River Announces Third-Quarter 2011 Results from Continuing Operations|
- Sales of $277.6 Million -
WILMINGTON, Mass., Nov 01, 2011 (BUSINESS WIRE) -- Charles River Laboratories International, Inc. (NYSE: CRL) today reported its results for the third quarter of 2011. For the quarter, net sales from continuing operations were $277.6 million, an increase of 2.5% from $270.9 million in the third quarter of 2010. Foreign currency translation benefited the reported sales by 3.7%. Sales increased in the Research Models and Services (RMS) segment, but declined in the Preclinical Services (PCS) segment.
On a GAAP basis, net income from continuing operations for the third quarter of 2011 was $18.9 million, or $0.37 per diluted share, compared to a net loss of $24.2 million, or $0.38 per diluted share, for the third quarter of 2010. Last year's third-quarter GAAP results include the impact of a $30.0 million fee related to the termination of a proposed acquisition.
On a non-GAAP basis, net income from continuing operations was $28.7 million for the third quarter of 2011, effectively unchanged from $28.8 million for the same period in 2010. Third-quarter diluted earnings per share on a non-GAAP basis were $0.57, an increase of 23.9% compared to $0.46 per share in the third quarter of 2010. Higher sales and operating income in the RMS segment were largely offset by softer performance in the PCS segment. Non-GAAP earnings per share benefited primarily from the net accretion of stock repurchases.
James C. Foster, Chairman, President and Chief Executive Officer, said, "Our third-quarter results, particularly in PCS, reflect an ongoing trend whereby our clients are focusing on earlier in vivo biology research at the expense of regulated safety assessment, including GLP toxicology. Our RMS and PCS businesses have benefitted from increased demand for non-GLP services, although the contribution to PCS revenues in the third quarter is being overshadowed by the continuing decline in demand for GLP safety assessment, as well as softer demand from mid-tier pharmaceutical and biotechnology companies as a result of a decline in available funding.
We believe there are greater opportunities to support our clients' requirements for outsourced in vivo biology services, such as in vivo pharmacology and drug metabolism and pharmacokinetics (DMPK), which were historically considered core by our clients and not available to contract research organizations like Charles River. We believe that partnering with us will enable our clients to achieve a flexible drug development model at lower cost and increased efficiency," Mr. Foster concluded.
The Company reports results from continuing operations, which excludes results of the Phase I clinical business that was divested during the second quarter of 2011. The Phase I business is reported as a discontinued operation.
Third-Quarter Segment Results
Research Models and Services (RMS)
Net sales for the RMS segment were $171.5 million in the third quarter of 2011, an increase of 7.7% from $159.3 million in the third quarter of 2010. Excluding the effect of foreign exchange, RMS sales increased by 3.1%, primarily driven by higher sales of Other Products, which includes the In Vitro and Avian businesses, as well as Research Model Services.
In the third quarter of 2011, the RMS segment's GAAP operating margin was 28.3% compared to 26.9% for the third quarter of 2010. On a non-GAAP basis, the operating margin increased to 29.0% from 28.1% in the third quarter of 2010. The operating margin improvement was primarily attributable to sales volume leverage, as well as efficiencies derived from cost-savings actions implemented in 2010.
Preclinical Services (PCS)
Third-quarter 2011 net sales from continuing operations for the PCS segment were $106.1 million, a decrease of 4.9% from $111.6 million in the third quarter of 2010. The PCS sales decline was due primarily to a continuing preponderance of shorter term, less complex studies in the sales mix, as well as fewer GLP safety assessment studies. Sales to large biopharmaceutical clients were stable, but sales to small and mid-tier biopharmaceutical companies declined. Foreign currency translation benefited the sales growth rate by 2.4%.
The third-quarter 2011 GAAP operating margin decreased to 3.5% from 4.6% in the same period in 2010. On a non-GAAP basis, the operating margin declined to 9.3% from 12.2% in the third quarter of 2010. The operating margin decline was primarily attributable to lower sales, which offset the benefits of cost-savings actions implemented in 2010.
Stock Repurchase Update
During the third quarter of 2011, the Company repurchased approximately 1.8 million shares for $63.8 million. As of September 24, 2011, Charles River had $141.3 million remaining on its $750 million stock repurchase authorization.
For the first nine months of 2011, net sales were effectively unchanged at $851.7 million from $851.8 million for the same period in 2010. Foreign currency translation benefited net sales growth by 2.9%.
On a GAAP basis, net income from continuing operations for the first nine months of 2011 was $88.4 million, or $1.69 per diluted share, compared to $8.3 million, or $0.14 per diluted share, for the same period in 2010.
On a non-GAAP basis, net income from continuing operations for first nine months of 2011 was $97.8 million, or $1.87 per diluted share, compared to $91.1 million, or $1.40 per diluted share, for the same period in 2010.
Research Models and Services (RMS)
For the first nine months of 2011, RMS net sales were $523.0 million, an increase of 4.9% from $498.6 million in the same period in 2010. Foreign currency translation benefited net sales growth by 3.5%. On a GAAP basis, the RMS segment operating margin was 29.8% for the first nine months of 2011, compared to 28.1% for the prior-year period. On a non-GAAP basis, the operating margin was 31.0% for the first nine months of 2011, compared to 29.2% for the same period in 2010.
Preclinical Services (PCS)
For the first nine months of 2011, PCS net sales were $328.7 million, a decrease of 6.9% from $353.2 million for the same period in 2010. Foreign currency translation benefited net sales growth by 2.1%. On a GAAP basis, the PCS segment operating margin was 6.3% for the first nine months of 2011, compared to 3.4% for the prior-year period. On a non-GAAP basis, the operating margin was 12.5% for the first nine months of 2011, compared to 11.8% for the same period in 2010.
Items Excluded from Non-GAAP Results
Items excluded from non-GAAP results in the third quarter of 2011 and 2010 were as follows:
(1) In the third quarter of 2011, these items were related primarily to a gain related to the disposition of an RMS facility in Europe and costs to exit a corporate leased facility. In the third quarter of 2010, these items were related primarily to an asset impairment associated with the Company's planned disposition of its PCS facility in Arkansas.
Items excluded from non-GAAP results in the first nine months of 2011 and 2010 were as follows:
(1) In the first nine months of 2011, these items were related primarily to an asset impairment associated with the Company's RMS large model operations and gains related to dispositions of RMS facilities in Michigan and Europe, as well as exiting a defined benefit plan in RMS Japan and costs to exit a corporate leased facility. In the first nine months of 2010, these items were related primarily to an asset impairment associated with the Company's planned disposition of its PCS facility in Arkansas.
The Company is updating its forward-looking guidance based on continuing operations for 2011, which was last updated on August 2, 2011. The Company has reaffirmed its 2011 sales guidance, which assumes a moderate sequential increase in RMS sales and flat sequential PCS sales for the fourth quarter of 2011. Foreign currency translation is now expected to benefit 2011 sales growth by approximately 2.5% compared to 2010.
The Company's guidance includes the effect of the addition of a 53rd week this year. The 53rd week is characterized by light sales but normal costs, which in addition to normal seasonality, is expected to pressure the segment operating margins in the fourth quarter.
(1) These items include severance costs associated with the Company's fourth-quarter 2010 and 2011 actions, as well as operating losses primarily attributable to the suspension of operations at its PCS facility in Massachusetts and the closure of its PCS facility in China.
(2) These items were related primarily to: (i) an asset impairment associated with the Company's RMS large model operations; (ii) costs associated with corporate legal entity restructuring; (iii) exiting a defined benefit plan in RMS Japan; (iv) an adjustment of contingent consideration related to acquisitions; (v) costs associated with evaluation of acquisitions; (vi) gains related to the dispositions of RMS facilities in Michigan and Europe; and (vii) costs to exit a corporate leased facility.
Charles River Laboratories has scheduled a live webcast on Wednesday, November 2, at 8:30 a.m. ET to discuss matters relating to this press release. To participate, please go to ir.criver.com and select the webcast link. You can also find the associated slide presentation and reconciliations of non-GAAP financial measures to comparable GAAP financial measures on the website.
Use of Non-GAAP Financial Measures
This press release contains non-GAAP financial measures, such as non-GAAP earnings per diluted share, which exclude the amortization of intangible assets and other charges related to our acquisitions, expenses associated with evaluating acquisitions, charges and operating losses attributable to our businesses we plan to close or divest, severance costs associated with our cost-savings actions, taxes associated with the disposition of our Phase I clinical business, adjustments related to contingent consideration related to our acquisitions, a gain recognized upon the settlement of a life insurance policy of a former officer, fees and taxes associated with corporate subsidiary restructuring and repatriation, and the additional interest recorded as a result of the adoption in 2009 of an accounting standard related to our convertible debt accounting which increased interest and depreciation expense. We exclude these items from the non-GAAP financial measures because they are outside our normal operations. There are limitations in using non-GAAP financial measures, as they are not prepared in accordance with generally accepted accounting principles, and may be different than non-GAAP financial measures used by other companies. In particular, we believe that the inclusion of supplementary non-GAAP financial measures in this press release helps investors to gain a meaningful understanding of our core operating results and future prospects without the effect of these often-one-time charges, and is consistent with how management measures and forecasts the Company's performance, especially when comparing such results to prior periods or forecasts. We believe that the financial impact of our acquisitions (and in certain cases, the evaluation of such acquisitions, whether or not ultimately consummated) is often large relative to our overall financial performance, which can adversely affect the comparability of our results on a period-to-period basis. In addition, certain activities, such as business acquisitions, happen infrequently and the underlying costs associated with such activities do not recur on a regular basis. Non-GAAP results also allow investors to compare the Company's operations against the financial results of other companies in the industry who similarly provide non-GAAP results. The non-GAAP financial measures included in this press release are not meant to be considered superior to or a substitute for results of operations prepared in accordance with GAAP. The Company intends to continue to assess the potential value of reporting non-GAAP results consistent with applicable rules and regulations. Reconciliations of the non-GAAP financial measures used in this press release to the most directly comparable GAAP financial measures are set forth in the text of this press release, and can also be found on the Company's website at ir.criver.com.
Caution Concerning Forward-Looking Statements
This press release includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of words such as "anticipate," "believe," "expect," "will," "may," "estimate," "plan," "outlook," and "project" and other similar expressions that predict or indicate future events or trends or that are not statements of historical matters. These statements also include statements regarding our projected 2011 financial performance including sales and earnings per share; the future demand for drug discovery and development products and services (particularly in light of the challenging economic environment); including our expectations for revenue trends for the remainder of 2011; the development and performance of our services and products, including the impact this can have on our clients' drug development models; market and industry conditions including the outsourcing of these services and present spending trends by our customers; the impact of specific actions intended to more accurately align our infrastructure to the current operating environment, and to improve overall operating efficiencies and profitability; and Charles River's future performance as delineated in our forward-looking guidance, and particularly our expectations with respect to sales and foreign exchange impact. Forward-looking statements are based on Charles River's current expectations and beliefs, and involve a number of risks and uncertainties that are difficult to predict and that could cause actual results to differ materially from those stated or implied by the forward-looking statements. Those risks and uncertainties include, but are not limited to: the ability to successfully integrate businesses we acquire; the ability to execute our cost-savings actions on an effective and timely basis (including divestitures and site closures); the timing and magnitude of our share repurchases; negative trends in research and development spending, negative trends in the level of outsourced services, or other cost reduction actions by our customers; the ability to convert backlog to sales; special interest groups; contaminations; industry trends; new displacement technologies; USDA and FDA regulations; changes in law; continued availability of products and supplies; loss of key personnel; interest rate and foreign currency exchange rate fluctuations; changes in tax regulation and laws; changes in generally accepted accounting principles; and any changes in business, political, or economic conditions due to the threat of future terrorist activity in the U.S. and other parts of the world, and related U.S. military action overseas. A further description of these risks, uncertainties, and other matters can be found in the Risk Factors detailed in Charles River's Annual Report on Form 10-K as filed on February 23, 2011, as well as other filings we make with the Securities and Exchange Commission. Because forward-looking statements involve risks and uncertainties, actual results and events may differ materially from results and events currently expected by Charles River, and Charles River assumes no obligation and expressly disclaims any duty to update information contained in this news release except as required by law.
About Charles River
Accelerating Drug Development. Exactly. Charles River provides essential products and services to help pharmaceutical and biotechnology companies, government agencies and leading academic institutions around the globe accelerate their research and drug development efforts. Our dedicated employees are focused on providing clients with exactly what they need to improve and expedite the discovery, early-stage development and safe manufacture of new therapies for the patients who need them. To learn more about our unique portfolio and breadth of services, visit http://www.criver.com.
SOURCE: Charles River Laboratories International, Inc.